Peer to Peer (P2P) Lending
P2P lending has only been around since 2005, it’s a virtual market place that facilitates the matching of individuals with borrowers, both business and individuals.
Generally offers a better return for savers than banks, though there is more risk involved, with a lower interest rate for the borrowers than they could get elsewhere.
Advantages:
- Interest rates can be fixed for the duration.
- Requires a lower level of security and personal guarantees than banks. When applying for P2P lending, businesses can opt out of offering security, though there is a premium for this.
- Applicants with an adverse credit history have a better change of obtaining a loan with a P2P lender than from a mainstream lender. You are not relying on a banks risk-adverse credit committee.
- Covered by the FCA.
- The Government has announced that peer-to-peer savings will be permitted to be held within ISA’s. (for the lender).
Disadvantages:
- Rigorous checks, only a small percentage of applications are accepted.
- Not protected by the Financial Services Compensation Scheme.
- Still a relatively new market.
- Returns from lending via peer-to-peer are currently paid without any tax deducted, you’ll need to declare this income to HMRC on a self-assessment return, for the lender.

There are an ever increasing number of providers in the market. A few of the more established provides include Funding circle, RateSetter Marketinvoice

Bank Loan
Suited for longer term finance requirements say for capital purchases.
Advantages:
- The interest on business bank loans is tax deductible.
- Fixed-rate loans are easy to budget for as repayment stays the same. Helps when producing a cash flow forecast or budget.
-
Disadvantages:
- Difficult to obtain.
- May be required to provide personal guarantees, or security in the form of assets.
- Interest rates for small business loans can be high.

You don’t always have to go to your own bank there are a number of financial institutions that offer loans to businesses.

Enterprise Finance Guarantee scheme (EFG)
Scheme brought in by the government many years ago to encourage banks to lend. The theory is if a business was turned down by conventional banks the business could if it met the criteria reapply using the EFG as security.
The reality is the banks hardly ever lend against the EFG. Have a look at this HMRC link for more details on the scheme and banks that have signed up.

Bank Overdraft

Good for short-term borrowing to get over immediate cash flow requirement.
Advantages:
- The interest is calculated only on the amount of funds utilized. Great savings on the interest cost compared to a fixed-rate loan.
Disadvantages:
- Payable on demand.
- There are set up costs to consider
- May require guarantees against the business and the owners

Sales invoice factoring

This is where the business sells its sales invoices to a third party for an immediate inflow of cash. The factoring company gets paid when the invoice becomes due. Generally they will pay a percentage once the invoice is presented to them and the balance when customer settles their account. This could be a 70/30 split though could be negotiated down depending on the credit worthiness of the customer and their location.
Advantages:
- Great for cash flow
- Maintains relationship with customers
- Able to pay suppliers, may be negotiate better terms
- Doesn’t affect your credit score
Disadvantages:
- Could be costly, set up fees, transaction fees, standing monthly fees
- Often tied into a year contract
- Factoring company has charge over the assets of the business
- Could affect the business ability to get additional credit
- If dealing in foreign currencies you often have to use their FX rates
- They have tight credit check criteria that may exclude some of your customers.
- Personal guarantees are often required.

All the high street banks offer this service as well as independent providers. Set up can be anything from a month to three months depending on circumstances.

A Business Angel

This is an individual who invests in start-up businesses and offers their expertise to help the business grow.

Advantages:
- The capital investment does not require repayment unlike a bank loan. If the business takes off, then both the owner and the investor benefit.
- Your chances of success increase. Angel investors typically offer years of experience and expertise when it comes to successful start-ups/SME’s.
Disadvantages:
- Angel investors expect a higher rate of return than borrowing funds.
- Angel investors always want an exit strategy usually within five years.
- The owners’ equity in the business is diluted, giving away your future net earnings.
- You will lose an element of control of your business.

Business owner/ Family & Friends

The business owner reaches out to their personal network in the hope they will make an injection of cash or other resources. Funding is emotive often there is little consideration of risk.
Advantages:
- The motivation to invest may not be purely for financial reasons. They will allow time to build the business and may not incur the pressure to repay as urgently as other forms of finance.
Disadvantages:
- The finance available from family members and friends is often said to be limited.
- Money is often a sensitive subject; it could cause disagreements with close relatives and friends.

Be careful when choosing somebody to approach, it may have consequences on your relations far beyond the initial request. Its advantageous to put any agreement in writing and have both parties to sign to avoid any misunderstanding down the line.

Businesses at some point will possibly need finance for any number of reasons. Before embarking on sourcing the funds the business owners should consider the options. The cardinal rule is to match the funding requirement to funding source. If you need to raise finance for a capital project you’d probably not use your credit card!Consider the questions you’ll need to ask yourself.

1) How much finance is required?
2) Work out what you can afford, there are loan calculators on line. Decide on an interest rates (be realistic about this) and loan periods. Play around with some scenarios you’ll be able to work out some indicative repayment amounts that fit your budget and cash flow. If the numbers don’t stack up, think laterally.
3) When are the funds needed? Generally sourcing finance takes longer than expected don’t be surprised if the first lender doesn’t have the appetite for your requirements. There is always another lender out there.
Before approaching a funder consider what affect the cash injection will have on your business.
1) Will this affect your gearing level?
2) What security can be provided against the finance?
3) Are you willing to give up some of your ownership to potential investors, if so how much are you prepared to give away?
4) The tax effect of the different decisions, what can you deduct as an expense against profits?

Two years ago I wrote about cloud software in the UK market. It’s now a lot more prevalent. A survey that was shared with me recently was 70% of business wanted cloud accounting but only 10% of practice accountants offer support.

There are new players operating in the UK market, Exact Business Software came to my attention earlier this year. They offer a CRM as integral part of the starter package. I think they are positioning themselves somewhere between the market leaders to SME and the ERP providers. Some of Exact’s advanced solutions I think could offer solutions if a trader is looking for a one stop shop rather than going down the app route.

There are now apps for anything and everything, Receipt Bankare being very proactive in their marketing and interface with all the main players. It does take the hassle out of recording receipts and you no longer have to keep paper copies.

Just concentrating on the main features for cloud accounting platforms the main new features include Auto Enrolment, though I have to say not all of them are that user friendly. I like Brighpay as a solution but again my personal preference. The other new feature is mobile apps for the accounting platforms.Word of warning make sure the software you choose is android friendly, not everyone has an Apple

QuickFile

Quickbooks

Exact

Kashflow

Xero

Sage 50 Professional

FreeAgent

Freshbooks

Sales

Y

Y

Y

Y

Y

Y

Y

Y

Sales order processing

N

Y

Y

Y

Y

Y

N

Y

Quotes

Y

Y

Y

Y

Y

Y

Y

Y

Purchases

Y

Y

Y

Y

Y

Y

Y

Y

Purchase order processing

Y

Y

Y

Y

Y

Y

Y

N

Stock

N

Y

N

N

Y

Y

N

Y

Payroll

N

£1 Per employee PM

N

Y

Y

£4-20 PM

Y

N

VAT Returns

Y

Y

Y

Y

Y

Y

Y

Y

Reporting

Y

Y

Y

Y

Y

Y

Y

Y

Annual Accounts

Y

Y

Y

Y

Y

Y

Y

N

Debtors reports

Y

Y

Y

Y

Y

Y

Y

Y

Creditors reports

Y

Y

Y

Y

Y

Y

Y

Y

Multi Currency

Y

Y

Y

only business package

Y

Y

Y

Y

Chart of accounts

Y

Y

Y

Y

Y

Y

N

Y

CRM

N

N

Y

N

N

N

N

N

Auto Enrolment

N

Y

N

Only on business & payroll package

Y

Y

Y

N

Mobile App?

N

Y

Y

N

Y

Y

Y

Y

Pricing depends if the end user pays or the accountant. We generally include the price as part of the package.

QuickFile

Quickbooks

Exact

Kashflow

Xero

Sage 50 Professional

FreeAgent

Freshbooks

Customer

Free-£45 PA

£6-£25 PM

£19-£29 PM

£5-£15 PM

£9-£25 PM

£50 PM

£19-£29 PM

$9.95-$39.95 PM

Accountant

portal

£1.27-£297.29 PM

Free

Free

Free

Practice Studio Free

Free

Have to login

Have to login

If you want to know more about cloud accounting solutions give us a call we provide support only for the main player in the UK. Not one solution fits all businesses.

Over the last few years, the way businesses record their data and keep their books has changed considerably. In the good old days they would have a server in a dedicated room with AC and miles of cables, with computer screens taking up half your desk, but no more. In a relatively short time, the accounting software houses have gone virtual.
All the software packages still have desktop versions, but frankly why bother? You can be on the beach drinking pina coladas and still keep your finger on the pulse running the business. Better still, with cloud software if there’s a problem your accountant or IT person can go straight in and have a poke around.

But with loads of solutions out there (most of which I’ve used), how do you make a decision?

Taking the top sellers in the UK market, I have broken down their main attributes based on functionality, feel and price. I’ve also tried not to be biased. A lot of the software is you will see does the same thing. Which software to choose comes down to personal preference and the needs of the business at the time. Luckily the software is generally quite portable, so if a solution is no longer adequate you can easily move on.

Industry / Sector

All the software I’ve reviewed will work across most sectors from retail to the service industry. I have a couple of online retailers who obviously use various versions. They wouldn’t be suitable though for construction, manufacturing or tourism and hotel businesses.

Modules

So what can they do?

On a first view they all pretty much do the same thing. To try and find some differences one has to look at the GUI. They all say they are intuitive, but my view is that some are more so than others.

FreeAgent, Freshbooks, Kashflow and Xero all look the same; they have very similar colour schemes (what’s the thing about the blue?) and layouts. It can be confusing switching between them. Quickfile uses a white background. Both Quickbooks and Sage 50 have the traditional look you find on the desktop versions which unless you’re an accountant is awful to navigate.

Quickfile

FreeAgent

Freshbooks

Kashflow

Xero

Quickbooks

Sage 50 Professional

Sales

Y

Y

Y

Y

Y

Y

Y

Sales Order processing

Y

N

N

Y

Y

Y

Y

Quotes

Y

Y

Y

Y

Y

Y

Y

Purchases

Y

Y

Y

Y

Y

Y

Y

Purchase Order Processing

N

Y

N

Y

Y

Y

Y

Stock

N

N

Y

from AUS$10

Y

Y

Y

Payroll

N

N

N

+ £420 p.a

Y

£42 p.m package

N

VAT returns

Y

Y

Y

Y

Y

Y

Y

Reporting

Y

Y

Y

Y

Y

Y

Y

Annual accounts

Y

N

N

Y

Y

Y

N

Platforms

Interestingly, they all have versions for iPhones and iPads as well as android except Quickfile and FreeAgent.

Interfacing

They all have interfaces with banks allowing CSV files to be downloaded and by tagging can allocate to invoices, be that customers or suppliers. In fact if there isn’t a matching invoice they will set it up, brilliant!

Another handy function is the customer receipts. They all will allow you to take payments from PayPal and often other platforms including Sagepay. Just like the bank download these can be tagged.

What I really like is that you can file returns with HMRC. Why is that great? Audit trails: you can download or refer back later.

Dashboards

This for me is the best reporting tool. It’s the home screen when you go into the software, so sometime needs to ensure that only the pertinent information is shown. I like to see bank balances, debtors and creditors, and key dates for tax returns. Most will do this to a greater or less extent but my least favourite has to be Sage.

Pricing

I know that’s what it’s about but don’t be fooled. Are you’re getting what you pay? Watch the cost of add-ons these can be expensive.

I really like Quickfile for its simplicity but have a problem with their pricing module, why charge the accountant for passing business their way. The competition often pay us accountants to introduce, oops, did I let that slip.

From FreeAgent to Quickbooks, there’s not much in it. Although FreeAgent, Freshbooks and Sage don’t have Accountants’ portals.

The drumroll goes to Sage: it’s not even web based, it’s a hosted service.

Payroll costs seem to be wildly different. Some providers have in-house solutions others have partnerships.

Finally

We’ve helped loads of businesses migrate to the cloud. It’s not just about price but what is right for the business.

When making the move, don’t try doing it without professional assistance. If you mess it up it can be extremely costly to fix.

Testimonial from one of our clients, Carl Hughes of IT Hound

ODFS really has the knowledge in the cloud accountancy sector. I manage my business completely online and I wanted a product that could compliment this so I could do all my invoicing, sales and accounting in a browser and not have to install a program on my computer.

ODFS recommended Quickfile and helped me setup invoicing templates and a way of working so that I could manage outstanding invoices, use reports to give me a picture of how my business was doing and at the same time understand the various accountancy terms with ease.

I don’t feel the above could have been done as quickly using a traditional desktop accountancy program and the fact that ODFS could log in to my online account saved the endless emailing of reports and spreadsheets.

Its unusual to find an accountant who has such a vast knowledge of how to do finances in the cloud; so if you are looking for an efficient company to help you manage your accounts I highly recommend ODFS.

Your UK tax liability depends on where you are 'resident' and 'domiciled' in a tax year.

Up to 5 April 2013, your tax position could be affected if you were ordinarily resident in the UK. However, from 6 April 2013, the concept of ordinary residence has largely been abolished for tax purposes.

Since 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT). For the majority of people whether or not they are resident for tax purposes is quite straightforward under the test and their position will not change. For those with complex circumstances the SRT will provide more certainty about their residence status.

To help you understand your tax residence status HM Revenue & Customs (HMRC) will be launching an on-line tax residence indicator. This residence indicator gives an indication of your tax residence status after answering a few straightforward questions such as how many days you spent in the UK, where you have a home and if you have family ties. The first version was launched in June 2013 follow this link to see how it affects you

The 12 online questions and scores that make up HMRC’s business entity tests are as follows:

Test #

Area

Question

Score

1

Business Premises test

Does your business own/rent separate business premises which are separate from your home and client’s premises?

Yes = 10

2

PII test

Do you need professional indemnity insurance?

Yes = 2

3

Efficiency test

Has your business had the opportunity in the last 24 months to increase your business income by working more efficiently e.g. by finishing the work/project earlier than projected but still receiving the full agreed payment?
For example you originally agreed with the client/engager that the work would take 3 months and cost 10,000 but you finished in 2 months and still received the full 10,000 at the end of the 2 month period.

Yes = 10

4

Assistance test

Does your business engage one or more workers who generate at least 25% of your business turnover annually?

Yes = 35

5

Previous PAYE test

Have you been engaged on PAYE employment terms by your current client/end user within the last financial year with no significant changes to your working arrangements?
If you are doing the same work you should answer yes to this question. Current engager also includes working at a different location owned by your engager or working at a different company but which is connected e.g. part of the same group.

Yes = (minus) -15

6

Advertising test

Has your business invested over £1,200 on advertising, excluding entertainment in the last 12 months?

Yes = 2

7

Business Plan test

Does your business have a business plan with cash flow forecast, that is regularly updated, and a business bank account which is separate from your personal account and identified as a business bank account by the bank?

Yes = 1

8

Repair At Own Expense test

Would your business have to bear the cost of having to rectify any mistakes?

Yes = 4

9

Client Risk test

Has your business been unable to recover payment for work done during the last 24 months in excess of 10% of annual turnover?

Yes = 10

10

Billing test

Do you invoice for work carried out prior to being paid and negotiate payment terms?

Yes = 2

11

Personal Service test

Does your business have the right to send a substitute?

Yes = 2

12

Substitution test

Has your business hired anyone in the last 24 months to do the contracted work you have taken on? This could be demonstrated by sending a substitute in your place or by sub-contracting, but in both cases your business remains responsible for the work and for paying the substitute or sub-contractor.
You can still pass this test if you had to notify the end client of the name of the individual you sent as a substitute.

A dispensation is a notice from HMRC that removes the requirement for the employer to report certain expenses and benefits at the end of the tax year on forms P11D or P9D.
There is also no need to pay any tax or National Insurance contributions on items covered by a dispensation.

Once granted, dispensations last indefinitely. However, HMRC can review them to make sure that the conditions under which they were issued still apply.

A dispensation includes routine business expenses and benefits. There is no defined list, though the main expenses routinely covered by a dispensation are:

travel, including subsistence costs associated with business travel

fuel for company cars

hire car costs

telephones

business entertainment expenses

credit cards used for business

fees and subscriptions

For a company to apply for a dispensation, there must be some basic systems in place. At a minimum this means someone, other than the employee who is claiming the expenses, has to check that the:

amount claimed isn’t excessive

the claim doesn’t include disallowable items

If it is not possible for you to operate an independent system for checking and authorising expenses claims – for example, because you are the sole director of your company and you have no other employees – you will only be able to obtain a dispensation if you:

ensure all expenses claims are supported by receipts for the expenditure

demonstrate that the claim relates to expenditure that can be covered by a dispensation – your receipts may be sufficient for this purpose, but if not you must retain additional information

Tax on business entertainment and expenses is an area that can be really confusing for business owners and staff.
In general VAT can’t be claimed, though if related to employees’ travel, subsistence or entertainment it’s allowed but with many caveats. If there is a third party (i.e. a prospective client), the VAT can only be claimed on the employee’s portion; and then only if the expenses are incidental.

Confused?

VAT can only be claimed on business gifts up to £50 per recipient per year.

If a business organises employee-only events, the VAT can be reclaimed as long as no third parties attend. If the event is only for directors, the VAT is not reclaimable.

From an income tax and corporation tax perspective, expenses have to be wholly and exclusively for the benefit of the business, otherwise they are disallowed. If such expenses relate to non-staff entertainment they are not allowable.

Gifts are strange, if they relate to some charitable or noble cause then they can be allowable. If it’s taking a client to the races, you have no chance.

Generally alcohol, cigarettes and music are not covered at all, including for staff, so give them a very wide berth. That includes a case of wine for the Chairman, who might then be taxed as a benefit in kind on their P11D or P9D.

NB:

P11D or P9D are end of tax year returns of expenses paid to employees and directors. Companies can get a dispensation from HMRC in some circumstances, see separate blog on this topic.

Residual profit split

Transactional net margin

Taxpayers are only expected to provide documentation which would be reasonable for them to have in their possession.

From the taxpayer’s point of view, the OECD guidance only requires documentation to be kept which would be consistent with the evaluation of any other business decision.

6. What records need to be kept?

Only the records that would normally be expected to be kept by a business. HMRC can’t ask for anything else.

Documentation must exist at latest by the time the Corporation Tax return is filed.

7. What can be done to mitigate?

Entering into an Advance Pricing Agreement (APA) with HMRC, it’s preferable to a retrospective examination of the enterprise’s transfer pricing policies

It is binding on HMRC and the company over an agreed period, usually 3 to 5 years

8. Who needs to be worried?

Obviously all large organisations, medium enterprises are subject to power of direction, which means they don’t have to self-assess. The HM Revenue and Customs would only make a power of direction against one of these companies in exceptional circumstances.

A small enterprise is completely exempt from the transfer pricing rules, unless the other party is a related party in a country without a non-discrimination clause typically, a tax haven.

The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations. The relief will be phased in from 1 April 2013 and the lower rate of Corporation Tax to be applied will be 10 per cent.

The Patent Box enables companies to apply a lower rate of Corporation Tax to profits earned after 1 April 2013 from its patented inventions and certain other innovations. The relief will be phased in from 1 April 2013 and the lower rate of Corporation Tax to be applied will be 10 per cent.
The company can only benefit from the Patent Box if the company is liable for Corporation Tax and makes a profit from exploiting patented inventions.

The company must also own or exclusively license-in the patents and must have undertaken qualifying development on them.

An enterprise can benefit from the Patent Box if the company owns or exclusively licenses-in patents granted by:

UK Intellectual Property Office

European Patent Office

The company or another group company must have also undertaken qualifying development for the patent by making a significant contribution to either:

the creation or development of the patented invention

a product incorporating the patented invention

Watch out for transfer pricing issues, see my blog on this.

Patent holders may wish to license their inventions for further development. If the company holds licenses to use others' technology it may still be able to benefit from the Patent Box. But to do so it must meet all of the following conditions:

Rights to develop, exploit and defend rights in the patented invention

One or more rights to the exclusion of all other persons (including the licensor)

Exclusivity throughout at least an entire national territory - rights to manufacture or sell within part of a country, for example, would not qualify as exclusive

The licensee must either be able to bring infringement proceedings to defend its rights or be entitled to most of the damages awarded in successful proceedings relating to its rights.

The exclusive licensing conditions are relaxed for groups of companies. This recognises that one company in the group may own a portfolio of patents while another exploits them.

The company has to make an election to benefit from the reduced rate of Corporation Tax that applies to the Patent Box.

The election must be made within two years after the end of the accounting period in which the relevant profits and income arose.

The full benefit of the regime will be phased in from 1 April 2013. You will need to apply an appropriate percentage to the profits your company earns from its patented inventions.

The appropriate percentages for each financial year are:

1 April 2013 to 31 March 2014: 60 per cent

1 April 2014 to 31 March 2015: 70 per cent

1 April 2015 to 31 March 2016: 80 per cent

1 April 2016 to 31 March 2017: 90 per cent

from 1 April 2017: 100 per cent

Just for the nerds, there is no box on the Company Tax Return for making the election. Instead apply the reduced 10 per cent rate by subtracting an additional trading deduction from your Corporation Tax profits.

Examples

If a company has trade Corporation Tax profits of £1,000 in the financial year from 1 April 2015 which qualify in full for the Patent Box, and the main rate of tax is 22 per cent, then instead of arriving at a tax charge of £100 by multiplying £1000 by 10 per cent, the calculation is:

If a business provides a company car, (not a van as this is treated through the general pool) the rules are dependent on when the car was purchased.
On cars bought before April 2009, the allowances were restricted to the first £12,000 over 4 years, so £3,000 a year and adjusted for personal use.

After that date, the Capital Allowance was restricted to the CO2 omissions as stated on the V5 registration document of the car.

The table below only applies to cars with 100 per cent business use.

CO2 emissions

Capital allowances treatment of expenditure

Over 160 grams per kilometre (g/km)

Goes into the special rate pool and qualifies for writing-down allowances at the rate for the special rate pool, currently 8 per cent per annum.

160g/km or less but more than 110g/km

Goes into the main pool and qualifies for writing-down allowances at the rate for the main pool, currently 18 per cent.

110g/km or less (but note that the first-year allowance for cars in this category is due to expire in 2013)

You can claim up to 100 per cent allowance in the accounting period when they were bought, the balance (which may be nil) goes into the main pool in the next year. For detailed guidance, see the guide First-year allowances: the basics

The amount a business can claim for providing a company cars has always been complicated and many hours have been spent figuring out if it’s really worthwhile for an employee to have one. There are benefits and costs for both. Sometimes it may be advantageous for all concerned to pay a mileage allowance which shortcuts the debates.

HMRC has approved allowances for using an employee’s vehicle for business purposes. It should be noted that the employee should confirm they are appropriately insured otherwise they could be in breach of their insurance.

Employee vehicles: mileage payments for business travel

Type of vehicle

Rate per business mile 2012-13

Car

For tax purposes: 45p for the first 10,000 business miles in a tax year, then 25p for each subsequent mile

For NICs purposes: 45p for all business miles

Motorcycle

24p for both tax and NICs purposes and for all business miles

Cycle

20p for both tax and NICs purposes and for all business miles

If an employee is given a company vehicle they must pay benefit in kind on the use. This includes PAYE usually in the form of reducing the tax free allowance and Class 1 NIC. The rules are constantly changing, but suffice to say they are getting more restrictive.

Two final notes:

Pooled vehicles are cars that are used by any member of staff and stay at the company’s premises overnight; and where any personal mileage is incidental. Under these circumstances no employee pays any benefit in kind.

In the language of the taxman, depreciation is called “Capital Allowances” or sometimes ”wear and tear allowances” and how we accountants report it differs in the management reports of businesses be they internal management accounts or for statutory reporting.
So what purchases are covered by Capital Allowances? Not always an easy question to answer, but if you buy or make something either physical or intangible (for example software, although not internally generated intellectual property “IP” ), and it is used to produce economic benefit to the business or, put simply, kept long term for the benefit of the business then that will be considered an applicable purchase.

In accountants’ terms, we define Fixed Assets using various headings, for example Buildings, Motor Vehicles, Computers, Plant & Machinery and Fixtures and Fittings. Depending on the type of asset, the business may apply different rates of depreciation.

The taxman’s treatment of Fixed Assets is totally different. There is not a relationship at all, giving rise to a heading in a business’ statutory accounts as “Deferred Tax” being a timing difference between the accountant and the tax treatment.

HMRC starts with two headings, the main pool where most assets are classified and the special rate pool.

Once the purchase or construction has passed the test of being suitable to claim Capital Allowances, the asset is placed in the general pool, unless it qualifies as being classified elsewhere.

The special rate pool covers all assets that are integral to the business’ properties, (not the building itself though, that rule was phased out in 2006).

The assets which are now classed as integral features are:

* Electrical systems (including lighting systems)

* Cold water systems

* Space or water heating systems, powered systems of ventilation, air cooling or air purification, and any floor or ceiling comprised in such systems

* Lifts, escalators and moving walkways

* External solar shading

Over the years a number of exceptional pools were created, ostensibly to make the system more user friendly:

Small Pool Allowance

Two considerations. If capital expenditure in either the general pool or special rate pool is less than £1,000 then it can be written off in the current year.

New expenditure of £1,000 or less, recorded separately in its own pool and written off in full in the current year. Just in case you were thing of it, you can’t write off the first £1,000 of expenditure in this manner

Annual investment allowance (AIA)

This was introduced in 2008 and covers plant and machinery, but not cars. The allowance has been a bit of a yoyo. When it was introduced in 2008, the allowance was £50,000, in 2010 this was increased to £100,000, then in April 2012 reduced to £25,000. It was announced in the Autumn statement that from the 1 January 2013 for two year only this allowance has been increased to £250,000

The AIA replaced the first year allowances which ceased to be allowable from 2008. Although there was a special first year allowance which was applied temporarily in 2009 to energy-saving and water-efficient equipment, cars with very low carbon dioxide emissions and goods vehicles with zero carbon emissions.

Type

Capital Allowance

Includes

1

Main Pool

18% per annum since 6 April 2012

Until 2008 this was 25%, was previously 20%

All assets not included elsewhere

2

Special Rate Pool

8% per annum

Until 2008 this was 10%

Long life assets

3

Annual Investment Allowance (AIA)

£250,000 per annum since 1 January 2013 for 2 years

When introduced in 2008 was £50K increased to £100K in in 2010. Down to £25,000 in April 2012

On plant and machinery only

4

First year allowance

SME 50%, Medium sized businesses 40%

Not long life assets or leased equipment

On plant and machinery only

Capital Allowances on motor vehicles rules are more complicated and are on a separate blog

You’ve completed your tax returns, you think you can now breathe a sigh of relief, but can you?
HMRC can inspect any taxpayer’s records under Schedule 36 by FA08, FA09 and FA10. They can check the tax records for:-

Pay as You Earn (PAYE)

Value Added Tax (VAT)

Income Tax (IT)

Capital Gains Tax (CGT)

Corporation Tax (CT)

Insurance Premium Tax (IPT)

Inheritance Tax (IHT)

Stamp Duty Land Tax (SDLT)

Stamp Duty Reserve Tax (SDRT)

Petroleum Revenue Tax (PRT)

Aggregates Levy (AGL)

Climate Change Levy (CCL)

Landfill Tax (LFT) and

Bank Payroll Tax (BPT)

The technical term for the inspection is a Compliance Check. They will check that the tax payer has:-

Complied with their obligations

Paid the correct amount of tax and at the right time

Claimed the correct reliefs and allowances

The inspection

This can be completed by anything from a short telephone call to confirm a single fact, to a detailed investigation of a person's entire financial affairs over a period of years.

HMRC may undertake checks by either asking for information or documents or by arranging a meeting or visit.

Require third parties by notice in writing (for example a supplier or bank) to provide information and produce documents (a “third party notice”)

The caveat being that these requirements are reasonable for the purpose of checking a tax position. The generic term for these types of notice is information notice.

The recipient has the protection of a right of appeal to, or prior approval by, an independent tribunal. There is no right of appeal however where the notice only refers to information or documents that form part of a taxpayer's statutory records, or any person's records that relate to:

The supply of goods and services

The acquisition of goods from another member state, or

The importation of goods from outside the European Union (EU) by a business

If the taxpayer is not forthcoming with the information, HMRC may invoke their statutory powers to obtain them.

They may also request assistance with aspects of a tax check from other government departments.

This could include a situation where there is reason to believe that a taxpayer:

did not notify chargeability to tax

did not register for VAT if required, or

is operating in the informal economy

Restrictions on Information Powers

The taxman is not all-powerful; some safeguards have been installed, set out in the law and with guidance so that in carrying out compliance checks

HMRC's powers are used reasonably and proportionately

Taxpayers are clear about when a compliance check begins and ends

Officers have no right to enter any parts of premises that are used solely as a dwelling, whether to carry out an inspection or to examine documents produced under an information notice. They can, however, enter if invited

FA09 adds to Sch 36 FA08 a power to inspect all property for the purpose of valuation (for direct taxes purposes). This requires either the taxpayer's agreement or Tribunal approval

Unannounced visits will only be made where agreement has been given by an authorised officer

Other safeguards include the fact that officers can’t require certain things to be provided:

Information relating to the conduct of appeals against HMRC decisions

Legally privileged information

Auditors or tax advisers advice to a client about their tax affairs

Information about a person's medical or spiritual welfare

Journalistic material

Time constraints

Information over six years old can only be included in a notice issued by or with the approval of an authorised officer

HMRC cannot give a notice in respect of the tax position of a dead person more than four years after the person's death

The Power to Visit Business Premises and Check Assets and Records

Inspection powers allow an officer of HMRC to enter business premises and inspect the premises, business assets and statutory records.

If an information notice has been issued earlier, the documents required in that notice could be inspected at the same time.

must only be undertaken where it is reasonably required to establish the tax position and

will normally be by prior arrangement, the date and time being convenient to the taxpayer

The Power to Visit Business Premises and Check Assets and Records

Inspection powers also allow any officer to enter any premises when they believe the premises are to be used in connection with taxable supplies of goods or taxable acquisition of goods from Member States, and such goods or documents relating to such goods are on the premises.

There is no right of appeal against an inspection but the occupier can refuse entry and prevent the inspection from being completed.

The occupier can be penalised for such obstruction, where the inspection has been approved by a Tribunal.

There may be occasions when a pre-arranged visit will be inappropriate, for example where there is a strong risk that the taxpayer would move the business or remove stock or other assets. In such cases, an unannounced visit may be undertaken subject to prior agreement by an authorised officer.

If a formal statutory approach is needed, and it has not been possible to agree the time of inspection and give written confirmation, the inspection must be approved by a Tribunal and 7 days written notice of the time of the inspection given. The application for approval must be made by, or with the approval of, an authorised officer.

When a Penalty can be charged where a person:

Fails to comply with an information notice

Conceals, destroys or otherwise disposes of documents required by an information notice

Conceals, destroys or otherwise disposes of documents that they have been notified are, or are likely to be, required by an information notice

Deliberately obstructs an inspection that has been approved by the Tribunal.

In complying with an information notice provides inaccurate information or produces a document that contains an inaccuracy,

Fails to comply with a notice requiring contact details of a tax/duty debtor to HMRC.

These rights are covered in sections 38 FA 08 and 09

Types of Penalties

There are four types and amounts of penalty:

An initial penalty of £300

A daily penalty of up to £60 for every day that the failure or obstruction continues after the date the initial penalty is assessed

A tax-related penalty

A penalty not exceeding £3000 for providing inaccurate information or documents in response to an information notice

A tax-related penalty is in addition to the initial penalty and any daily penalties. The amount of the penalty is decided by the Upper Tribunal having regard to the amount of tax which either has not, or is unlikely to be, paid by that person.

A person is not liable to a penalty if they have a reasonable excuse for:

Failing to comply with an information notice, or

Providing inaccurate details or documents, or

Deliberately obstructing a tribunal approved inspection

If they correct their failure as soon as the excuse ends, the excuse will then be treated as continuing until the correction is made.

Normally, daily penalties will not be assessed after the failure has been remedied.

Record Keeping

Schedule 37 of FA08 amended existing record keeping legislation in respect of PAYE, VAT, IT, CGT and CT, whilst Schedule 50 to FA2009 extends this approach to IPT, SDLT, AGL, CCL, and LFT with BPT being included from 8 April 2010. Following consultation it was accepted that SDRT and PRT did not require separate statutory provisions, whilst IHT will be addressed through guidance.

These provisions are aimed at alignment and clarification.

This approach is designed to be flexible across a range of business and non-business taxpayers.

There are penalties for failure to keep adequate records.

The basic requirements in relation to record keeping have not changed but rules have been aligned on how long records are kept.

In business, a manager should always look at opportunities from the perspective of the return. All opportunities should be assessed with a view to the venture making a profit.
When an opportunity is presented, an investor wants to be sure that there will be a profit on their investment.

However, not all opportunities have a positive outcome and it is better to assess the risk before making any commitments. Not everyone has the same view of risk.

There are many factors to consider from an individual’s perspective: some people are more risk adverse than others; some may be better informed, that’ not insider dealing either.

The accepted ways of assessing risk can be categorised as follows:-

Expected values

This is the probability of the outcome being achieved, generally worked with a range of values.

Risk adjusted discount factor

This is the subjective approach where an inherent risk factor is built into the calculation. Any project which has a negative value after applying the calculation is automatically disregarded.

Payback

Not to be used in isolation, but the shorter the payback period, the lower the risk.

Simulations

This involves using all the factors to complete a scenario analysis. This is often too complex to be undertaken without the use of specialist programmes.

Sensitivity analysis

Where each factor, sales, volumes, direct costs, fixed costs and profits are assessed and calculated to show how wrong the estimates in percentage terms has to move before profits go negative.

If the investment opportunity has a high profit margin then sales can fall or costs rise by acceptable percentages and still the project can be profitable. Conversely if profit margins are low then the acceptable margin of error is reduced and increasing risk.